A SHORT-TERM STRATEGY BASED ON VOLUME

摘要

Why don't we see algorithmic systems that use volume? It seems that all of them use price, sometimes as spreads as in pairs trading or sometimes as the term structure of futures (often eurodollar rates or crude oil). Rarely does volume enter into the decision, except when selecting the most liquid equities or futures contacts. Yet volume provides a plethora of information for the trader, and incorporating it into a strategy offers benefits in diversification. Classic chart analysis says that increasing volume confirms the trend, while rising prices on declining volume is an opportunity to sell.That makes sense, but day-to-day volume is erratic. Averaging it helps, but that introduces lag, which makes the volume reading less timely. Volume in most markets declines in the summer, when many investors take time off. It also varies during the day, reading highest on the (traditional) open and close, and lowest around midday when traders break for lunch. That can result in unreliable trading signals.